Action Packed Week Ahead

This week could just be the week that lifts the markets out of their summer lull because its

probably the most data laden/central decision week for some considerable time (see the

schedule below for more detail). I will look at the main events due out shortly after I briefly

set the scene, with particular emphasis on the pound and the dollar this morning.

I said last week that the pound was bracing itself for more negative news and Friday’s close

against the dollar, below 1.24 is testament to that. Having said that, it is also clear that just

one seriously conciliatory comment from Brussels could so easily change the dynamics as

well. However, and as I noted, I don’t think we are anywhere near close enough to the

endgame for any of their rhetoric to shift yet- consequently the pound remains under

pressure. Comments over the weekend from Michael Gove haven’t done it any favours


From a purely technical perspective, I cannot see much in terms of support on the downside

for the GBPUSD right now except clear space and with GBPEUR back below 1.1100 this

morning, that’s only adding to the pressure that’s continuing to come from GBP sellers

there still looking to hedge the worst case scenario.

The Q2 US GDP, consumption and prices data on Friday all beat the forecasts with growth

now estimated to be running at 2.1% over the period, where an increase of 1.8% had been

widely anticipated. Perhaps more importantly the Q2 estimate on prices paid, which came

in at +2.4% instead of previously revised estimate of 1.1% was also well above the 2%

consensus. Personal consumption over the same period was well above expectations too.

However, and perhaps because this data is latent, the markets are still expecting the Fed to

cut rates this week owing to a degree of evidence that Q3 is looking somewhat weaker.

Over and above that the Fed themselves have made it clear that they think the pace of the

economy is now slowing and to a large degree they have now pushed themselves into a

corner on what action they have to take this week. I have already argued the case for why I

think there is no need for them to act this week, so I won’t repeat those thoughts again


What is clear though, is that the dollar will surely charge higher again if do they pass on

lowering the Fed Funds rate on Wednesday evening and may also react well to any

indication that this fed cut is “one and done”. Perhaps therein lies one particular currency

conundrum for the FOMC. Trump and his politicising of monetary policy is the other they

will have to continue to deal with it seems. Over and above that, what is interesting to me is

the fact that the dollar has rebounded over the past month, and lifting ahead of what is an

expected rate cut. A few people I have spoken too are slightly perplexed by that, especially

those that were positioned in anticipation of just the opposite.

Last week, following the ECB decision and Draghi’s outlook for the European economy, the

EURUSD tried to fall even further, but stopped its descent at 1.1100 and there were some

serious buyers at that level I am told. However, it remains to be seen if they will come to the

Euro’s rescue again this week. Beyond that the USD index is above 98 again as I write this

morning, but further upside is still being held back by that 98.35-40 level I mentioned last

week. Moreover, and given where the equity markets are right now, I don’t think the likes of

the Dow Jones and the S+P will react well if the Fed doesn’t ease this week.

The other asset that surely will not like inaction from the Fed is gold. The market is clearly

long on this one now and almost certainly wouldn’t react well if the Fed does pass on

lowering rates. Conversely, further upside will be seen if the Fed does move and also throws

in the prospect of more of the same to come. Regardless of that, I still like gold priced in

other currencies, especially GBP.

However, beyond whatever outcome we get from the US central bank midweek, there’s a

number of other important releases due out that could shape how and where the markets

end up come the close this Friday. There’s the Bank of Japan policy decision sometime in the wee hours tomorrow and important Chinese manufacturing PMI numbers and Eurozone

inflation and growth data too. Following the Fed, on Thursday there’s the Bank of England

policy decision as well. Then to cap it all on Friday; we’ve got more important US data with

the latest US monthly employment report.

If Her Majesty did say what she reportedly said to the new Prime Minister last week, then I

can’t imagine how she might fail to say something similar to the existing BOE governor (or

the new one whenever he/she arrives) if given the opportunity. I certainly wouldn’t want

that job right now and whilst the Old Lady might want to threaten the use monetary policy

to protect the currency, I cannot see that it would instil anything other than a very short

lived reaction in the pound were it to be mentioned. Hence Carney and co are on a very

sticky wicket (just like the Australians later this week too I hope!) and I cannot see what on

earth they might say, let alone do, to change that this Thursday.

So, with that in mind I will be back with more after the Fed on Wednesday and ahead of the

BOE Thursday lunchtime- duly armed with the benefit of some hindsight I hope, on many of

those important releases that will have hit the screens by then.

Important Economic Releases Due This Week

30/07- 3.30am Bank of Japan Monetary Policy Decision

(No Changes expected)

30/07- 1.00pm German July CPI (YOY) Inflation Report

30/07- 1.30pm US June (YOY) PCE –Personal Consumption Expenditure

30/07- 3.00pm Pan US Consumer Confidence Index

31/07- 2.00am China July Manufacturing PMI

31/07- 2.30am Australian Q2 CPI Inflation Report

31/07-10.00am Eurozone Q2 GDP Revision

31/07-10.00am Eurozone July CPI Estimate

31/07-1.15pm US July ADP Private Payroll Report

31/07-1.30pm Canadian May GDP Estimate

31/07-2.45pm US Chicago PMI

31/07-7.00pm US FOMC Monetary Policy Decision

(Consensus-Fed Funds rate expected to lowered by 0.25%)

31/07-7.30pm Fed Chair Powell Post FOMC Decision Press Conference

01/08- 2.45am China Caixin July PMI

01/08- 12.00pm Bank of England Monetary Policy Decision

(Consensus- No changes expected)

01/08-12.30pm BOE Post Policy Decision Press Conference

01/08- 3.00pm US July ISM Manufacturing Index

02/08- 1.30pm US July Unemployment Report and Non Farm Payrolls